Question

Margaret Moore started her own consulting firm, Carla Vista Consulting, on May 1, 2020. The following transactions occurred during the month of May.

May:
1 Trixie invested $7,600 cash in the business.
2 Paid $950 for office rent for the month.
3 Purchased $600 of supplies on account.
5 Paid $160 to advertise in the County News.
9 Received $4,500 cash for services performed.
12 Withdrew $1,200 cash for personal use.
15 Performed $5,600 of services on account.
17 Paid $2,000 for employee salaries.
20 Made a partial payment of $400 for the supplies purchased on account on May 3.
23 Received a cash payment of $3,600 for services performed on account on May 15.
26 Borrowed $5,500 from the bank on a note payable.
29 Purchased equipment for $4,000 on account.
30 Paid $350 for utilities.

Required:
Show the effects of the previous transactions on the accounting equation.

Answer 1

Answer:

1. Equity will increase

2. Asset Decrease

3. Asset and liability increase

4. Asset decrease

5. Asset increase

6. Equity decrease

7. Asset increase

8. Asset decrease

9. Asset and liability decrease

10. No effect

11. Asset and liability increase

12. Asset increase

13. Asset decrease

Explanation:

Accounting equation reflects the impact on the business for every transaction. There are three main components of an accounting equation. Asset, Liabilities and Equity. If one component increase the other might increase, decrease or have no effect.

Asset = Liabilities + Capital